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  • Acceleration Of Stock Time And Its Consequences

    Einstein took his contemporaries by surprise when he published his Theory of the Relativity of time. Time speed is indeed not constant and depends upon your speed. For example take a supersonic plane for a long haul and your watch won't be on time when you land (don't try with your Rolex).

    Theory of Relativity may also be applied to financial markets (the one exception being that - still now - financial pundits find it irrelevant). Stock time varies. It does. Traders would sometimes say "it is slow today". It is not just a feeling, it is a fact and that reality has led to "tick-by-tick" trading for example. What is even more interesting is the first and second derivatives of stock time. Stock time can for example lose its acceleration at a high speed and remains at such high speed. Over the last two years we have started to observe regular periods of high speed and close to nil acceleration. It is still unusual today but as the average stock time increases in speed and so are its acceleration, new phenomena will be clearer and clearer for some and new for the rest. A good example is trend following. Two years of dreadful performance caused by the disappearance of trends, they say but is it really so? We do not think so because trends for most are fractals (i.e. they exist because markets are semi-efficient or they have the fractal signature) and those fractals have changed scales and therefore you need a binocular to see them or you must slow down their frequencies.

    Even in economic cycles time has accelerated (not because of the internet or the cell phone - Please) and similarly equity market cycles measured the old way have shortened (they have not but again you are using the wrong instrument). The RTS for example has seen its Fourier frequencies increase for example but who has noticed. The first order has increased from 87 to 96 and the second order from 41 to ... 286!

    What does it mean to you? Beware of the stock time! Believing in constant time is as dangerous as believing in standard deviation/normal distribution to measure your risk. The Noah effect in the recent run on the Euro is a perfect example. Beware.

    Jan 14 3:42 PM | Link | Comment!
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